World markets:
US wheat dropped sharply after yesterday's United States Department of Agriculture (USDA) report; corn numbers were the biggest driver in grains and the numbers were very bearish. US corn yields were raised to 181.3 bushels per acre which was well above the trade's estimates. Eight states were seen as producing record yields and this added six million tonnes to the total US production for 2018/19, pushing world ending stocks up by 2.5 million tonnes.
The USDA did drop Australian production by two million tonnes to 20 million tonnes, and Canadian by one million tonnes to 31.5 million tonnes. However, these drops were offset by a surprise three million tonne increase in Russian production to 71 million tonnes, and a 2.7 million tonne increase for India. World export demand was dropped by 2.5 million tonnes which came from Australia and Canada; thus leaving US, EU and Russian exports unchanged and resulting in an overall increase of 2.5 million tonnes to world stocks.
The weather is showing no signs of improvement in Australia, with forecasts still dry right to the end of the month. The USDA is now closer in line with the Australian Bureau of Agriculture and Resource Economics and Sciences (ABARES) number for wheat production, but 20 million tonnes may still be too high if the drought continues.
Matif wheat traded higher ahead of the USDA but made a quick turnaround to close lower on the day after the bearish report was released. The USDA expects the EU to export 23 million tonnes this season which is the same amount as last year. In light of their production issues and the current export pace lagging by 40%, this does look like a big ask. However, we are only at the start of the 2018/19 campaign so there is a long way to go. The USDA's increase for Russian production was a surprise; they cited excellent spring weather which is not in line with the weather maps we saw through the season. Russian export intentions will remain a key watch point but, without any fresh news on this, negative sentiment has the upper hand in wheat markets.
UK markets:
London wheat traded £1.15/t higher ahead of the USDA before dropping to a close of £175.50, down £1.35 on the day. This morning was lower again, catching up with further US losses after our close.
With a negative set of USDA numbers for wheat and corn and a shift in UK supply and demand now that Vivergo is set to close at the end of the month, it is difficult to support a bullish sentiment in wheat markets without some fresh news. It could be time for farms to place stocks that need to move this side of Christma, to ensure movement and protect against any further losses. Prices are still a long way up from the lows, despite recent drops.
